Monday’s a quiet day for US economic news — a lull that will focus attention on a trio of industrial production updates for Europe’s main economies excluding Germany. The numbers arrive after last week's decision by the European Central Bank (ECB) to leave interest rates unchanged and forgo new policy measures to stimulate economic activity. The reasoning, ECB President Mario Draghi explained, is the bank's forecast that the Eurozone recovery "is expected to proceed, albeit at a slow pace". Today’s set of numbers for January will test the validity of that outlook.

The ECB has faith in Europe's gradual recovery, but will today's output data support this view?Photo: Alexander Hassenstein / Photodisc

France Industrial Production (07:45 GMT): Unemployment in France fell to 10.2 percent in last year’s fourth quarter, the government’s statistics office reported last week. Although the jobless rate is still high by any reasonable standard, the news of a downtick is encouraging because it marks the first quarterly decline in two years. But if France is finally emerging from recession, the transition to sustainable growth will likely follow a long and rocky path. Indeed, the country’s services sector in February contracted at the steepest pace in eight months. Meanwhile, France's Retail Purchasing Managers Index (PMI) slumped for the sixth straight month. “Panellists continued to bemoan the difficult economic climate,” Markit Economics noted in a press release.

It’s clear that Europe’s second-largest economy is still struggling to right itself, but there are green shoots in some corners. Manufacturing, in particular, seems to be making some progress, albeit in relative terms. The Manufacturing PMI rose to 49.7 last month, or just below the neutral 50 mark. Manufacturing activity is still contracting in France, but at the slowest rate in five months.

Does that imply a recovery for industrial activity overall? Today’s update on the hard data for January will provide an answer. Pay close attention to the year-over-year comparison, which provides a robust measure of the trend. In the last two releases, industrial output increased on an annual basis in seasonally adjusted terms. That’s an encouraging sign, assuming that today’s data makes it three in a row.

Spain Industrial Production (08:00 GMT): The economic news continues to point to recovery for Spain — and in a more convincing degree versus France. There’s still limited confidence for thinking that Europe’s fourth-largest economy is genuinely on the mend, but macro updates in recent weeks suggest that positive momentum is building. Last week, for instance, manufacturing activity expanded for the third-consecutive month, according to the Manufacturing PMI for February. Meanwhile, the government reported that the number of workers seeking jobless benefits fell slightly last month, offering some relief in the wake of January’s sharp increase. Meantime, the mood in the business sector continues to improve. The Ministry of Industry, Tourism and Trade reported late last month that its business confidence indicator rose to the highest level in three years in January.

Today’s update on industrial activity for January will be closely watched for signs that recovery was moving forward on this front at the start of the year. There’s a growing consensus that assumes no less. The European Commission, for instance, recently upgraded its outlook for the country, predicting that “the incipient economic recovery is forecast to get firmer in the coming quarters.” But there’s still a number of risk factors lurking that could slow or even reverse the rebound for Spain and throughout the Eurozone. High unemployment is one concern. Low inflation, which raises the threat of deflation, is another.

For the moment, however, the market is on board with projecting better days lie ahead. For instance, bond yields for Spain and Italy fell to lows last seen in 2005. "As long as the economic picture in the euro area, particularly in the periphery, continues to improve and given that overseas investors are increasing exposure to peripheral markets there's another leg lower in peripheral spreads,” an analyst at RIA Capital Markets noted on Friday. An upbeat number in today’s industrial production release will further boost the notion that Spain’s truly on the mend.

Italy Industrial Production (09:00 GMT) In contrast with France and Spain, the trend with Italy’s industrial output looks wobbly. After showing signs of life in November with a 1.5 percent rise in the annual comparison, industrial activity returned to form in December by slumping 0.7 percent versus the year-earlier level (in calendar-adjusted terms). The renewed weakness surprised economists, raising concern that the expected improvement for Europe’s third-largest economy was on hold once again. But the raw data reveals that industrial output increased in 2013 and so it’s not yet clear if Italy’s looking at a new leg down.

We’ll know more once today’s report is published. On the bright side, Italy’s Manufacturing PMI continues to reflect growth through last month’s update. According to Markit Economics, the country’s “upturn” in its manufacturing sector “remains solid”, in part because new orders are rising, according to the February press release. That’s a clue for thinking that industrial production will remain stable if not rise a bit in the near term. But at this stage, even good news on the macro front is less about raising expectations versus looking for evidence that Italy can avoid new pitfalls.

The best-case scenario for the moment is assuming tepid growth, although even this low standard draws limited confidence. That’s hardly a shock for an economy that continues to suffer from rising unemployment, among other challenges. Is there room for improvement in 2014? Yes, or so it seems based on the consensus for a roughly 0.5 percent growth outlook for Italy’s GDP in 2014. That’s quite weak, but it’s an improvement over last year’s decline. Today’s news on industrial production will provide a clue for deciding if even that small bit of optimism for this year is still valid.

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